Defining Economics Objectively

Joe,any understanding of division of labor has to be understood based upon the Ricardian law of comparative advantage, which clearly recognizes differences in human talents and abilities and the incredible productive synergy that takes place when people cooperate and trade. Division of labor is the key concept of economics because the concept illustrates the role and link of the individual in an economy.

As a general comment, the reason consumption doesn't need to be emphasized in a broad definition of economics is that 1. The human desire to consume more and better products is a given so therefore aggregate demand can be taken as a given. 2. So it is production that drives the success of an economy and not things like "consumer confidence" or consumer spending. These things can effect individual businesses but do not drive the economy as a whole.

- Jason
(Edited by Jason Quintana
on 7/17, 10:30am)

Post 21

Tuesday, July 17, 2007 - 10:47am

Kevin, using Wikipedia for philosophical definitions? You are looking for philosophical answers from people who don't know why diamonds are more expensive than water? : )

I think Objectivism's "value is that which you act to gain or keep" is the root of both the economic and the supposed "philosophical" definition on wikipedia.
(Edited by Dean Michael Gores
on 7/17, 10:50am)

Post 22

Tuesday, July 17, 2007 - 6:24pm

"...The first part of the book [Wealth of Nations] is given over largely to the division of labor."

Joe--

The Division of Labor actually refers to two different concepts. In the older sense, it refers to the observation that as societies become more complex, individuals specialize in specific jobs (This is often called the social division of labor). Smith noted that it was this specialization that increased the wealth of a society.

Smith took this observation and applied it to the famous pin factory. He reasoned in an analogous fashion that specialization allows the pin factory to produce more pins in less time and allow it to increase revenues over pin producers who do not practice such task specification.

"...I was interested to learn that Rothbard and Von Mises both had reservations about the book, both remarked that it led to Marxism..."

I would be interested in reading their full arguments. Can you tell me in which works you read this (and if it is available online the links)?

Not knowing Rothbard or Von Mises' arguments, my best guess is that they are talking about Smith's Theory of Surplus Value. Smith observed that all societies that are operating at a level higher than subsistence trade extra goods and the revenues generated from this trade ultimately get distributed to individuals based on social class. Landlords receive the surplus in the form of rent, bond holders in the form of interest, and workers in the form of wages. Marx basically took Smith's idea of surplus value, and combined it with Ricardo's idea of the Labor Theory of Value (which basically says that the value of the labor required to produce a product is embodied in that product) to produce his analysis of capitalism.

.."it seems that division of labor IS a major component [of a definition of economics].

I disagree. The division of labor simply states how production is organized. It does not explain, for example, why a good or service is produced, in what qualities and at what price. For that reason, it really does not add much to a general definition of economics.

Kevin

Post 23

Tuesday, July 17, 2007 - 8:44pm

Luke, re consumer: If you haven't heard the term yet, Alvin Toffler coined the term PROSUMER in one of his older books, and his newest book REVOLUTIONARY WEALTH talks about how Smith and co.'s views on consumers are outdated in light of a saturated mass market which is giving way to a marker of mass customization; the prosumer participates in the creation of his consumables. Interesting book so far...

Post 24

Tuesday, July 17, 2007 - 11:05pm

**double post**
(Edited by Jason Quintana
on 7/17, 11:09pm)

Post 25

Tuesday, July 17, 2007 - 11:08pm

"I disagree. The division of labor simply states how production is organized. It does not explain, for example, why a good or service is produced, in what qualities and at what price. For that reason, it really does not add much to a general definition of economics."

Actually you have it backwards. A definition of economics should not be an encyclopedic discussion. It should explain what, at bottom the concept of economics is. It is in fact a science that studies a certain kind of human action within the framework of a certain kind of human interaction. All of the things you talk about can be considered as part of the science of economics but they are not part of a proper definition of it. They are the questions one asks once one comes up with a proper definition -- a definition that should include the concept of division of labor.

- Jason

Post 26

Wednesday, July 18, 2007 - 11:22am

I would define economics simply as the study of how men trade with one another or resource allocation. A division of labor is implicit in that definition because if all men did the same labor, what would men be trading their labor for? In addition Kevin you bring up price in your definition of economics but that too implies a division of labor. Why would anyone attach a price to a good or service if there was no division of labor and thus everyone was making the same goods and services? All markets have a division of labor or else they would not be considered a market. And a market is an integral part to any economics discussion.

Post 27

Wednesday, July 18, 2007 - 3:06pm

Jason :"Ricardian law of comparative advantage"...Thanks, I'll look this up. :)

Kevin:

Mises' WHY READ ADAM SMITH TODAY?

Rothbard's THE ADAM SMITH MYTH

Post 28

Wednesday, July 18, 2007 - 5:54pm

Jason wrote:

"...It [economics] is in fact a science that studies a certain kind of human action within the framework of a certain kind of human interaction."

Touch�! I really do not have a response to that. A definition of economics in that form might work for me.

Thank you, all of you, for your patience as I have come back at you with questions/observations/criticisms about the definition. As I said in my first post [and I PROMISE I won't say it again], the Webster's definition is in my view the best starting point when teaching economics, and would thus be useful in Luke's enterprise. One of my biggest frustrations as both a student and tutor of economics is that teachers/professors seldom show both the "big picture" and the interrelationship between ideas. When I tutored students, I would start with the Webster's definition and the ideas of production, distribution, and consumption, and then explain the concepts that fall under each of these three, and then show the interrelationship between each.

Kevin

Post 29

Wednesday, July 18, 2007 - 6:15pm

Is Communism Outside of Economics?

Let's take a moment to check out how the following definitions "work" when applied to part of reality. Remember, the purpose of a definition is differentiation (of something from all other known kinds of things).

1. Economics is the study of value production, value trading, and value consumption amongst a population of individuals.

2. The science that studies the production of wealth under a system of division of labor.

3. A social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.

Let's examine how these 3 stack up when applied to the subject of communism. Def'n #1 effectively differentiates a market economy from communism -- because there's no genuine trading under a truly communist system. Def'n #2 doesn't work well here, because wealth and divided labor can, albeit with questionable qualifications, be found in a communist system. Def'n #3 doesn't work well either, because production, distribution, and consumption are straightforwardly found in a communist system.

If my line of reasoning is correct (that communism is outside of economics proper), then it appears -- from this abbreviated analysis -- that value trading is an essential characteristic of economics (and should be included in a useful definition of it). Good on you, Dean, for bringing that to attention. Does anyone disagree with this apparent progress in understanding what economics is (and is to be differentiated from)?

Ed

Post 30

Wednesday, July 18, 2007 - 11:31pm

Ed -- I think you are confusing a definition of capitalism with a definition of economics. Economics can explain why capitalism is better then communism only because economics can
examine why communist central planning is an ineffective economic system. Communism is clearly an "economic system" and can be considered under the discipline of economic science. Capitalism is "value production, value trading, and value consumption amongst a population of individuals", and economics can explain why this is the case but this is not a definition of economics. I think Reisman's definition still stands.

- Jason

(Edited by Jason Quintana
on 7/18, 11:33pm)

Post 31

Wednesday, July 18, 2007 - 11:37pm

Joe, specifically look at comparative advantage as explained by Mises, Reisman or any of the post Mises Austrians. The common definition explains this concept as it pertains to "trade between nations" when in fact it is a concept which explains trade between individuals.

- Jason
(Edited by Jason Quintana
on 7/18, 11:37pm)

Post 32

Wednesday, July 18, 2007 - 11:40pm

Would it not help to define what an economy is before defining economics?

Ted Keer

Post 33

Friday, July 20, 2007 - 9:16am

I appreciate all the comments and feedback here. I have completed and posted the article "Experiencing Objectivism through Quicken" to the moderator queue and hope to see it published in the next few days. You can continue the discussion there if you like.

Post 34

Tuesday, July 31, 2007 - 11:06pm

If it is proper to define by essentials, then I would personally define Economics as: "Management of resources under conditions of scarcity."

Post 35

Saturday, August 4, 2007 - 3:35am

Warren, but isn't it still rightfully called "economic" to manage resources under conditions of abundance??

Ed

Post 36

Saturday, August 4, 2007 - 5:18am

but isn't it still rightfully called "economic" to manage resources under conditions of abundance??

Only if ye optimizing your benefits - else is a waste of your own scarce resource, time....

Post 37

Saturday, August 4, 2007 - 10:38am

I think George Reisman calls the condition "finite" rather than "scarce" or "abundant."

Post 38

Saturday, August 4, 2007 - 12:36pm

Good point - finite can be plentiful if not in use, or scarce if highly demanded...... yet there be a limit to it....

Post 39

Saturday, August 4, 2007 - 5:37pm